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SPY – 3-10-16

I started with a quick TSLA call trade, following the bot on some heavy cal buying at the open. Then my plan was to call it quits for the rest of the day and work on the new SPY bot. But by 10:00 The SPY reached a 161.8%XA projection of a XABCD pattern on the 15min chart. And as you know this is what can start a high probability setup.

We are welcoming a couple of new members this week, so I’ll take this opportunity to walk through the various setups today, which hopefully will help you interpret my tweets during the day better.

The indicators I have developed on Stockfinder find both “bearish” and “bullish” XABCD patterns. They only plot the most recent active patterns on my chart, bullish pattern in yellow, and bearish pattern in blue. The patterns in different colors are previously completed patterns, which I draw in.

The indicator gives an alert (entry) at the start of a possible CD leg of an XABCD pattern. Trading the entry of a CD leg can result in a very good trade, but probability is just about 60%. So therefore I have developed some rules that dramatically improve the probability.

First I observe a higher Timeframe then the Timeframe I like to take trade entries, which is usually the 5min. So I watch 15min and 30min charts for patterns that either have reached their AB=CD PRZ, or a XA projection.

This was the case this morning:

In this particular pattern the 127%XA was exactly inline with the AB=CD PRZ. the second bar decisively closed above the PRZ.

Once it reached the 161.8%XA, which was shortly thereafter, we can switch to the lower Timeframe, and now look for an entry for a CD leg of an opposite XABCD pattern. While the following condition is true:

The Bar A, or the Entry bar of the 5min pattern has to engulf the PRZ or XA level of he opposite pattern on the 15min chart

This happened rather quickly as well:

Bar A is at the 161.8%XA of the 15min chart, and it only too 4 bars to qualify the entry. This was a rather “small” pattern, and the subsequent R target was reached quickly. However in these instances we often see we get a confirmation, or a second chance, in case you missed this entry, in the form of an entry on a second wave.

The resulting PRZ targets proved to be a short lived support, before this pattern as well reached its 161.8%XA projection.

Note how the 161.8%A of this 5min pattern is virtually inline with the 50%XA of a 30min pattern (will get to that).

So now we can apply the same rule again; look for a new Bar A, or entry bar, as long as it’s at the 50%XA of the 30min chart.

And again this condition appeared rather quickly :

In the following chart I’ve replaced the previously detected patterns, with drawn in lines, while you can see how the indicator (blue) alerted for a new long entry at 14:20

Note how again the PRZ was decisively breached by a single bar; a good sign that further continuation is to be expected. This final pattern of the day got very close to its 161.8%XA

The indicator is plotting an entry at 198.96. This automatically will be re-calculated by each successive new high, as long as this high is lower then its Bar A high. I usually use this as a trailing stop.

At this point we don’t see the 5min chart at any major level of a pattern on a higher Timeframe, to look for new setups. So therefore we need to have the discipline to wait for signals of a higher TimeFrame first.

If we look at the 30min chart, and observe the blue and yellow indicators (convoluted cause of all the drawn in patterns from lower TimeFrames), then we see how today’s low was at the Bullish PRZ, 197.84. No 30min bar closed below it. while the tail of the 13:30 bar touched the 50%XA.

The Blue indicator signaled an entry for a possible CD leg with an associated PRZ target at 203.8.

Of course we still need to observe the 61.8%XA of the daily chart (purple line) and other mentioned daily levels in previous posts.

My apologies for the bot not functioning in the afternoon; I will have to bring it down a bit more frequent from here on to test the SPYbot. Although it didn’t tweet the optiontrades, I did record the trades after a downtime from about 12 to 13:30. I didn’t take notice during the day, but apparently some very bullish optionflow occured in next week’s Calls. You can see the at or above the ask dollar weighted Call and Put trade volume on the 5min chart. Yes, those large spikes are $18million and $14million in Calls.